The SECURE 2.0 Act of 2022 (SECURE 2.0) encompasses several changes affecting retirement plans that go into effect over the next few years. SECURE 2.0 aims to make it easier for employers to offer retirement plans and help employees plan for the future. There are a few key provisions of the law taking effect in 2025 as well as others already in effect that employers can still choose to implement.

Provisions Effective in 2025

There are three key provisions focusing on plan operation that are set to begin January 1, 2025.

Catch-Up Contributions

SECURE 2.0 added a voluntary catch-up contribution provision that is likely to be adopted by most plans. Section 109 of SECURE 2.0 allows 401(k), 403(b), and governmental 457(b) plans to offer higher catch-up contributions beginning in 2025 for participants turning ages 60 to 63 before the end of the taxable year. At age 64, the limit reverts back to the standard catch-up amount.

For 2025, the maximum catch-up limit increases to the greater of $11,250 or 150% of the age 50 catch-up limit. The catch-up limit in 2025 for participants at age 50 is $7,500, and the catch-up limit for those aged 60-63 is $11,250.

Plans are not required to offer catch-up contributions, but they can be amended to add this feature, allowing participants who are aged 50 or older during the tax year to make catch-up contributions above the standard elective deferral limits under the Internal Revenue Code.

Action steps:

• Track participants that are age 50 or over and participants that are turning ages 60-63 during the calendar year to make sure the correct catch-up limits are applied.
• Track participants that will reach age 64 during the calendar year who will “age out” of the higher catch-up limit and will again be subject to the age 50 catch-up limit.
• Along with required participant notices, send additional communications to participants that will turn age 60 or pass age 63 to help them understand what limit will apply for the year.
• Make sure birth dates for participants are accurate to ensure proper administration.
• Amend plan documents to reflect the increased catch-up contribution limits, if adding this provision.

Long-Term, Part-Time Employees

SECURE 2.0 expanded eligibility for part-time workers to participate in 401(k) and 403(b) plans. Starting in 2025, part-time workers who work for at least 500 hours each year for two consecutive years must be eligible to make employee contributions to their employer’s defined contribution retirement plan. Employers could previously disregard service for vesting and eligibility prior to 2023, which makes 2025 the first plan year that is affected by this rule. Employers are not required to provide an employer contribution to these long-term part-time employees (LTPTEs), but an employer matching or nonelective contribution is allowed, if desired.

On October 3, 2024, the Internal Revenue Service (IRS) issued Notice 2024-73, providing additional guidance on LTPTEs in 403(b) retirement plans and announcing a delayed applicability date for the final LTPTE regulations applicable to 401(k) plans. The notice:

• Stated that IRS anticipates issuing proposed regulations with respect to 403(b) plans that are expected to be similar to the final regulations regarding 401(k) plan LTPTEs
• Confirmed the forthcoming final regulations regarding LTPTEs participating in 401(k) plans will apply, at the earliest, to plan years beginning on or after January 1, 2026.

Action steps:

• Update plan documents to include LTPTEs.
• For 401(k) plans, hours should have been counted for part-time employees from 2021 forward. Offer all eligible part-time workers the opportunity to enroll in plan year 2025.
• For 403(b) plans, count hours for employees who worked about 500 hours per year for 2023 and 2024 to see if they are eligible. If so, enroll them in plan year 2025.
• Communicate changes to affected employees.
• Consider whether to permit matching or nonelective employer contributions for LTPTEs—and if not, state that decision in the plan document.

Automatic Enrollment and Escalation

Beginning January 1, 2025 (for calendar year plans), new 401(k) and 403(b) plans (established after December 29, 2022) must automatically enroll eligible employees at an initial rate of at least 3% but not more than 10% of pay. Then, each year thereafter, the deferral rate for continuing participants must be increased by at least 1% per year, up to at least 10% but not more than 15%.

Employees can opt out of automatic enrollment or any annual increases. The employer has the obligation to offer this, but employees do not have to participate. Employees must have at least 90 days to opt out and take a distribution of any automatic deferrals.

Exceptions

There are exceptions to the mandatory automatic enrollment and escalation requirements for new plans, including:

• 401(k) and 403(b) plans in existence before December 29, 2022
• Governmental plans, church plans or SIMPLE 401(k) plans
• Small businesses that normally employ ten or fewer employees. However, once a small employer normally employs more than ten employees, it is no longer considered a small employer and is no longer eligible for the exception. The requirements are effective one year after the year in which the employer normally employs over ten employees.
• New businesses that have been in business for less than three years. Once a new business has existed for three years, it is no longer exempt from the requirements. At that time, the plan must begin automatically enrolling the eligible employees.

Action steps:

• Review all new plans that were established after December 29, 2022 to ensure compliance with automatic enrollment and escalation rules.
• Update plan documents to reflect the new requirements.
• Communicate the automatic features to employees, including opt-out options and investment choices.
• Regularly review plans to see if any exemptions from the automatic enrollment mandate exist and ensure compliance when exemptions no longer apply.
• For multiemployer defined contribution plans that add a 401(k) feature after December 29, 2022, payroll providers and plan administrators must coordinate to track deferrals, manage opt-out elections, and ensure compliance with timely remittance requirements, as employees working for multiple participating employers may cause challenges.

Four Optional Changes That Require Opt-In by Plan Sponsors

There are four optional changes that may be of interest coming out of SECURE 2.0 that plans may continue to choose whether, and to what extent, to adopt in 2025.

Matching Student Loan Repayments

Starting in 2024, employers had the option to make matching contributions to 401(k), 403(b), governmental 457(b) and Savings Incentive Match Plans for Employees of Small Employers (SIMPLE) retirement plans based on an employee’s student loan payments. This provision may see increased adoption in 2025 as IRS released additional guidance on administration and as more employers become aware of the option and its potential benefits for attracting and retaining employees.

Penalty-Free Withdrawals for Domestic Abuse

Plans may permit withdrawals of up to $10,000 (indexed for inflation in future years) or 50% of the participant’s account for a participant who self-certifies they have been the victim of domestic abuse (e.g., physical, sexual, psychological, emotional abuse) by a spouse or domestic partner during the preceding one-year period. These withdrawals are not subject to the 10% tax on early distributions.

Federal Disaster Distributions

For participants with a principal residence in a federally declared major disaster area who experience losses arising from the disaster, plans can adopt the exemption from the 10% tax on early distributions of up to $22,000, provided the distribution is made within 180 days of the disaster. IRS recently issued a fact sheet clarifying answers to frequently asked questions regarding disaster relief and retirement plans under SECURE 2.0.

Terminally Ill Distributions

Plans may provide an exception to the 10% early distribution tax from employer-sponsored retirement plans for a distribution to a terminally ill individual. Participants must provide evidence as required by the plan administrator. Self-certification is not allowed.

Just Announced … Retirement Savings Lost and Found

SECURE 2.0 requires the U.S. Department of Labor (DOL) to establish an online, searchable lost and found database for retirement plan participants by December 29, 2024. The database must allow individuals to locate retirement benefits to which they are entitled.

The DOL issued a notice announcing that the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs has approved DOL’s Employee Benefits Security Administration (EBSA) information collection request after consideration of comments received. This means that EBSA is now collecting information from retirement plan administrators (e.g., via their recordkeepers, third-party adminstrators) in order to establish and maintain the Retirement Savings Lost and Found online searchable database. Information may be submitted immediately at https://lostandfound-intake.dol.gov/.

DOL also issued a Fact Sheet with instructions and additional information on how to populate the database.

In the Fact Sheet, DOL asks plans to submit:

• The full name and Social Security number of separated vested participants aged 65 or older who are owed a vested benefit
• Current contact information for plan administrators.

DOL requests this information be submitted as soon as possible before December 29, 2024 and updated at least annually thereafter but preferably more frequently (e.g., quarterly) to keep the database up to date. As currently structured, providing data to populate the lost and found database is voluntary, so it will be up to plans to decide whether to participate.

The notice also announced an enforcement policy to encourage the voluntary submission of data. The policy says DOL will not take enforcement action against the plan or anyone acting on behalf of the plan in responding to the information collection request without the participant’s consent to the extent required by state as long as the plan acts reasonably and in good faith.

Plan sponsors should watch for future guidance, as changes could still develop. Stay tuned to the International Foundation for updates on these and other SECURE 2.0 provisions.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.